Why This Stock Is Leading the Dow Higher
Dec 12th 2012 1:34PM
Updated Dec 12th 2012 1:42PM
The Dow is up after the Federal Open Market Committee released a statement at 12:30 p.m. EST in which it announced more Treasury bond purchases. As of 1:05 p.m. EST, the Dow Jones Industrial Average is up 65 points, or 0.48%, to 13,314. The S&P 500 is up 0.65% to 1,437 points.
This morning the U.S. Department of Commerce reported that prices of imports dropped 0.9% in November. That's below analyst expectations of a 0.5% decline. One of the biggest imports, fuel, fell 3% in November. If you exclude fuel costs, import prices were down just 0.2%
The big news, though, is the Federal Open Market Committee's statement. The Federal Reserve's "Operation Twist" is scheduled to end this month. That's the program in which the Fed sells $40 billion of short-term Treasury bonds every month and uses that money to buy long-term Treasury bonds in an effort to push down long-term interest rates, push investors into riskier assets, and stimulate the economy as a whole. This is in addition to the Fed's $40 billion per-month purchases of mortgage-backed securities.
Analysts had been speculating that the Fed would replace Operation Twist with direct buying of longer-term treasuries at a rate of $40 billion per month without offsetting shorter-term treasury sales. Analysts were almost correct: The Federal Reserve said it would purchase Treasury bonds at a rate of $45 billion per month. The Fed believes this renewed bond-buying program, combined with its mortgage-buying program,will prove effective, stating, "Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
The Fed also announced it will keep the target federal funds rate at 0% to 0.25% and plans to keep it that low until the economy and outlook improve such that "the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."
In other U.S. happenings, we continue to sit and wait for any news on the fiscal cliff. The only morsel of information the media has seized upon is that the Obama administration may be willing to consider corporate tax code changes, though details were lacking. Neither side has given any details on how talks are proceeding. The Motley Fool has created a special page that will be updated with all of our latest fiscal-cliff coverage to help cut through the daily noise and give you only the information and analysis you need as an investor. Head on over for everything you need to know about the fiscal cliff.
As the FOMC announces increased bond-buying and politicians keep mum about the fiscal-cliff negotiations, it's no surprise that the market is higher today.
Today's Dow leader
Today's Dow leader is DuPont up 2.4% to $44.73. After yesterday's market close, DuPont reaffirmed its outlook for the rest of the year and issued a better-than-expected forecast for 2013. For 2012, DuPont expects earnings per share of $3.25 to $3.30. For 2013, the company expects earnings growth in the low to mid-single digits and revenue growth in the low single digits. Further, the company announced a $1 billion stock repurchase program that will be paid for with money from the sale of its Performance Coating business in 2013 to the Carlyle Group . DuPont, Dow Chemical , and other American chemical companies have been profiting from the cheap natural gas now available in the U.S.
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The article Why This Stock Is Leading the Dow Higher originally appeared on Fool.com.Dan Dzombak can be found on Twitter @ DanDzombak or on his Facebook page, DanDzombak . He holds no position in any company mentioned. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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